AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received...
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Transcript of AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received...
![Page 1: AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received in the future Why? –Earning potential –Risk –Inflation.](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f475503460f94c69131/html5/thumbnails/1.jpg)
AGEC 407
Investment Analysis
• Time value of money– $1 received today is worth more than $1
received in the future
Why?– Earning potential– Risk– Inflation
![Page 2: AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received in the future Why? –Earning potential –Risk –Inflation.](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f475503460f94c69131/html5/thumbnails/2.jpg)
AGEC 407
Investment Analysis
• Future value– value of an investment at some future date– investment earns interest during each time
period– compounding: when interest in re-invested
![Page 3: AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received in the future Why? –Earning potential –Risk –Inflation.](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f475503460f94c69131/html5/thumbnails/3.jpg)
AGEC 407
Investment Analysis
• Present value – value today of a sum of money to be
received at some future date– $1 dollar in the future is worth less than $1
today– future values are discounted to the present
time period
![Page 4: AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received in the future Why? –Earning potential –Risk –Inflation.](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f475503460f94c69131/html5/thumbnails/4.jpg)
AGEC 407
Investment Analysis
• To determine the profitability of an investment, need to know:
– initial cost– net cash revenues– terminal value– discount rate
![Page 5: AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received in the future Why? –Earning potential –Risk –Inflation.](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f475503460f94c69131/html5/thumbnails/5.jpg)
AGEC 407
Investment Analysis
• Analyzing investments– payback period– simple rate of return– net present value– internal rate of return
![Page 6: AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received in the future Why? –Earning potential –Risk –Inflation.](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f475503460f94c69131/html5/thumbnails/6.jpg)
AGEC 407
Investment Analysis
• Financial feasibility of investment– impact on cash flow– separate decisions
• to accept an investment• how to finance the investment
![Page 7: AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received in the future Why? –Earning potential –Risk –Inflation.](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f475503460f94c69131/html5/thumbnails/7.jpg)
AGEC 407
Investment Analysis
• Additional factors– taxes– inflation– risk
![Page 8: AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received in the future Why? –Earning potential –Risk –Inflation.](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f475503460f94c69131/html5/thumbnails/8.jpg)
AGEC 407
Investment Analysis
• Steps for NPV investment analysis:1. estimate initial cost2. calculate discount rate3. estimate cash revenues and expenses over
life of investment4. calculate net cash revenues, depreciation,
and taxes5. calculate after-tax net cash revenue, capital
gains, and after-tax terminal value
![Page 9: AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received in the future Why? –Earning potential –Risk –Inflation.](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f475503460f94c69131/html5/thumbnails/9.jpg)
AGEC 407
Investment Analysis
• Steps for NPV investment analysis:6. calculate present values of after-tax net cash
revenues and terminal value
7. sum present values
8. subtract initial cost
9. gives you NPV for investment